COVID-19: ‘Africa well-positioned to defeat pandemic’ – IMF

The International Monetary Fund (IMF) in a recent pronouncement expressed optimism over the ability of Africa to suppress the COVID-19 pandemic.

A majority of countries in Africa are reporting low COVID-19 fatalities compared to European countries. This development spurred the IMF to issue the statement saying, “Africa seems to be suppressing the curve so far. It looks like it might escape the worst of the pandemic, but will have to be cautious about it.”

Despite this not-too-gloomy prediction, businesses have to plan accordingly since there is a good chance of re-occurrence of the COVID-19 virus, which could see the possibility of regular lockdowns.

In order to mitigate the damage, countries, and companies are working on strategies to pivot away from China as part of their supply chains.

Discretionary Spending

For individuals, health and safety will become paramount on their agenda which means there will be a reduction in discretionary spending.

People will spend on cheaper goods than on expensive goods, or delay spending for a while.

There will also be less loyalty towards brands as other aspects will take over. Also, there will be a trust deficit amongst stakeholders like vendors, customers, employees, borrowers, banks, etc.

Govt Stimulus

The economy was in poor shape even before COVID-19 therefore, the government has little leeway to provide large stimulus.

Inequality has already sharpened the gap between rich and poor.

The government must explore printing currency (quantitative easing), but there are limitations here. It has side effects like inflation, etc. Only the rich countries have more leeway for such quantitative easing.

Result of backlash against China

Internationally, there could be an emotional and economic backlash against China. This is because businesses with supply chains passing through China will need to insulate themselves and build alternatives.

Africa and African businesses need to try to become the contract manufacturer of the world, just like China is. They need to make use of this opportunity smartly.

Financial Markets

There will be value destruction and value creation in different companies in the same sector.

High Debt low margin companies will find it difficult. (indicates risky or unscrupulous management) while High Debt high margin companies could be rewarded, but caution needs to be exercised.

Forex Markets

No doomsday scenario (i.e. Dollar will keep on going up etc) because such scenarios don’t seem realistic.

The Government should be buying as much oil as possible, as such prices may never be seen in the future of oil.

As the western economies are more battered and the local economy is less battered so far, there is more liquidity coming in. That’s why there is a rally in the market. This scenario could change depending on the spread of the disease.

“Force Majeure” in Contracts

Should force majeure clauses be triggered in various contracts like rent, supply, etc; it will lead to litigation, but there is no point in getting into litigation now.

Parties need to sit across the table and find common ground and mutually decide upon the costs, rentals, etc. The burden has to be shared.

Optimism

As per a McKinsey survey of entrepreneurs released a few days ago, 67% of African entrepreneurs are optimistic, 53%, while only 37% of Asian entrepreneurs are optimistic.

It seems to be a mild U-curve for some African economies but the descent has not stopped yet.